ACCOUNTANT EXPLAINS: Signs You're Doing Well Financially (Even if it doesn’t feel like it)

Summary

In this video, the speaker, with over 13 years of experience in finance, outlines four key factors that dictate financial success. First, they emphasize the importance of playing the 'wealth game' rather than the 'status game,' which often leads to financial dissatisfaction. The second point discusses how income comparison affects our perception of success. The third focuses on three financial fundamentals: understanding your relationship with money, having an emergency buffer, and managing debt. Lastly, the speaker encourages adopting an individual perspective, free from societal expectations and comparison, to achieve true financial fulfillment.

Takeaways

• 😀 Focus on playing the right financial game: wealth-building, not the status game.
• 😀 The status game leads to unhealthy competition, comparison, and dissatisfaction.
• 😀 The wealth game is about building financial security, investing in assets, and growing businesses behind the scenes.
• 😀 Financial success should be evaluated based on wealth accumulation, not external displays of status.
• 😀 Our peer group has a larger impact on how we perceive our financial success than society’s average income.
• 😀 Loss aversion psychology: We feel worse about earning less than our peers than we feel good about earning more.
• 😀 To escape financial discontent, focus on individual progress, not comparisons with others.
• 😀 The first financial fundamental is understanding your income, expenses, and saving habits to ensure you live below your means.
• 😀 The second financial fundamental is having an emergency fund for unexpected situations, setting you ahead of many people.
• 😀 The third financial fundamental is managing debt responsibly, so you don't rely on debt to pay bills and maintain your lifestyle.

Q & A

What is the main reason people feel financially behind, according to the speaker?

People often feel financially behind because they are playing the 'status game,' comparing their success to others based on visible symbols of wealth and status, rather than focusing on their own financial health.

What is the difference between the 'status game' and the 'wealth game'?

The 'status game' is about external comparisons, like the size of your house or the brand of your shoes. The 'wealth game,' on the other hand, is about building true financial security, such as saving, investing, and creating assets that provide long-term freedom.

Why is the concept of loss aversion important when assessing financial success?

Loss aversion explains that the pain of losing is psychologically stronger than the pleasure of gaining. In the context of finances, this means that comparing your income to others can often lead to dissatisfaction, as losing out financially to peers feels more painful than gaining.

How does comparing yourself to others impact your financial happiness?

Comparing yourself to others often leads to dissatisfaction because, even if you're financially doing well, seeing someone else outperform you can make you feel inadequate, regardless of your own achievements.

What are the three fundamental areas one must get right to improve financial success?

The three fundamentals are: 1) Being aware of your relationship with money, including tracking your income and expenses, 2) Having an emergency buffer or savings for unexpected events, and 3) Managing debt to avoid relying on it to meet financial obligations.

Why is having an emergency fund so important for financial security?

Having an emergency fund provides a safety net in case of unexpected expenses or loss of income. It can give you peace of mind, knowing you're not financially vulnerable, and it sets you ahead of most people who do not have such savings.

How does debt impact financial health, and what is the average debt for individuals in the UK and US?

Debt can lead to financial instability if it becomes unmanageable. The average American has nearly $33,000 in debt, excluding their mortgage, and UK credit card debt is at an all-time high. Managing debt responsibly is crucial for financial success.

What psychological effect does society's perception of financial success have on individuals?

Society often applauds external signs of wealth, like luxurious lifestyles, which can make individuals feel inadequate if they don't measure up. This comparison can create a cycle of discontent, making people feel financially behind even if they are doing well by their own standards.

How can changing the way you look at financial success improve your outlook?

By shifting focus from societal expectations to personal financial goals, individuals can free themselves from unhealthy comparisons. Reframing success through personal terms rather than external validation allows for greater contentment and financial peace.

What is the question that challenges how we define success, and what does it imply?

The question asks whether you'd rather be the world's greatest lover but thought to be the worst by others, or the worst lover but believed to be the best by everyone. This analogy encourages us to focus on internal validation and personal achievements rather than society's judgment.